Annual Report 2011 - SNL Financial

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Annual Report 2011 - SNL Financial

Level 3—Represents financial assets whose fair value is determined based upon inputs that are unobservable, including

the Company’s own determinations of the assumptions that a market participant would use in pricing the asset.

The following table provides a summary of the fair value measurements of the Company’s fixed income securities,

convertible bonds, and equity securities, as of December 31, 2011 and 2010, excluding the segregated portfolio cell segment

(in thousands):

Fair Value Measurements at Reporting

Date Using

12/31/11 Level 1 Level 2 Level 3

Fixed income securities—available for sale:

U.S. Treasuries and government agencies ........... $ 16,143 $ 9,676 $ 6,467 $—

States, municipalities, and political subdivisions ...... 42,316 — 42,316 —

Corporate securities ............................ 21,509 — 21,509 —

Residential mortgage-backed securities ............. 22,360 — 22,360 —

Commercial mortgage-backed securities ............ 206 — 206 —

Collateralized mortgage obligations ................ 5,876 — 5,876 —

Other structured securities ....................... 1,023 — 1,023 —

Convertible bonds .................................. 17,574 — 17,574 —

Equity securities—available for sale ................... 12,939 12,939 — —

Total .................................... $139,946 $22,615 $117,331 $—

Fair Value Measurements at Reporting

Date Using

12/31/10 Level 1 Level 2 Level 3

Fixed income securities—available for sale:

U.S. Treasuries and government agencies ........... $ 23,344 $ 9,272 $ 14,072 $—

States, municipalities, and political subdivisions ...... 32,621 — 32,621 —

Corporate securities ............................ 16,006 — 16,006 —

Residential mortgage-backed securities ............. 25,759 — 25,759 —

Commercial mortgage-backed securities ............ 289 — 289 —

Collateralized mortgage obligations ................ 7,220 — 7,220 —

Other structured securities ....................... 773 — 773 —

Convertible bonds .................................. 18,140 — 18,140 —

Equity securities—available for sale ................... 16,753 13,228 3,525 —

Total .................................... $140,905 $22,500 $118,405 $—

There were no transfers between Level 1 and Level 2 securities for the year ended December 31, 2011.

The estimated fair values of the Company’s investments in fixed income securities, convertible bonds, and equity

securities are based on prices provided by an independent, nationally recognized pricing service. The prices provided by the

independent pricing service are based on quoted market prices, when available, non-binding broker quotes, or matrix pricing.

The independent pricing service provides a single price or quote per security and the Company does not adjust security

prices. Management has controls in place to validate the reasonableness of fair values provided by the independent pricing

service, including testing the fair value of a sample of securities on a quarterly basis by comparing fair values from different

pricing sources. Fixed income securities include U.S. Treasuries, agencies backed by the U.S. Government, municipal bonds,

mortgage-backed securities, collateralized mortgage obligations, asset-backed securities, and corporate bonds.

The Company’s fixed income securities and convertible bonds consist primarily of publicly traded securities for which

there are observable inputs and/or broker quotes. Most fixed income security prices provided by the independent pricing

service are based on observable inputs and, therefore, are classified as Level 2 securities. The Company does not hold any

fixed income securities, for which pricing was based on significant unobservable inputs; therefore, the Company has not

classified any of its fixed income securities as Level 3 securities.

The Company’s equity securities consist primarily of mutual fund instruments for which there is an active market and

quoted market prices; therefore, the Company has classified its mutual fund investments as Level 1 securities. As of

December 31, 2010, the Company held an investment in an international equity fund that was not traded on an active

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